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Security issuance decisions, idiosyncratic risk, and macroeconomic dynamics

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  • Abdul Rashid

    (International Islamic University)

Abstract

This paper, using a large panel of UK manufacturing firms, empirically examines firms’ financing decisions under risk. The results reveal that while idiosyncratic risk affects changes in debt negatively, it affects both the issuance of new equity and the use of retained earnings positively. The results also suggest that in periods of high macroeconomic risk, the use of new debt, equity financing, and retained earnings declines. Finally, the analysis provides evidence that both types of risk also have a significant and negative influence on changes in firms’ target leverage.

Suggested Citation

  • Abdul Rashid, 2017. "Security issuance decisions, idiosyncratic risk, and macroeconomic dynamics," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(4), pages 659-678, October.
    • Handle: RePEc:spr:jecfin:v:41:y:2017:i:4:d:10.1007_s12197-016-9370-x
    DOI: 10.1007/s12197-016-9370-x
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    More about this item

    Keywords

    Idiosyncratic risk; Macroeconomic fluctuations; Changes in leverage; External financing decisions; Equity financing; Retained earnings;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G3 - Financial Economics - - Corporate Finance and Governance

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